Recent concerns regarding global climate change have given rise to the concept that an entity, whether an individual, corporation or government, can be “green” with respect to certain behaviors which may involve an environmental impact.
The green movement is premised on two assumptions. First, that global climate change is occurring and that it is causing the climate of the Earth to warm, and, second, that human activity, in particular industrial activity, is a factor in the change, as opposed to any such changes occurring naturally as the result of natural global climate cycles.
This is based on the theory that the levels of various greenhouse gases (GHG) in the atmosphere, in particular the six identified by the Kyoto Protocol—carbon dioxide (CO2), methane (CH4), Nitrous Oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulphur hexafluoride (SF6)—have been increasing as the result of human activity, and that this increase is causing, or at least contributing to, a general warming trend in the Earth's climate in a manner well understood by those of skill in the art.
The net greenhouse gas emission of an entity is often measured in equivalent units of CO2 and referred to as an entity's “carbon footprint”. An entity's carbon footprint is believed to be a representative measure of that entity's impact on the environment vis-à-vis the concentration of GHG in the atmosphere. Entities that undertake initiatives to reduce their carbon footprint are often deemed to be socially responsible, and are therefore often labeled as being “green” or environmentally friendly.
There are a number of basic components to consider in making a determination of, or in attempting to measure an entity's carbon footprint. Of primary concern are operational effects, in which emissions arising from the activities undertaken by the entity itself (and other emitting entities it has ownership or control of) are considered. There are also upstream and downstream effects which may also be taken into account in determining an entity's net emissions.
For the purposes of accurate ‘carbon accounting’, the operational activities of the entity may be further subdivided into direct GHG emissions and indirect GHG emissions.
Direct operational emissions are defined as having occurred from sources that are owned or controlled by the entity, including, for example, emissions from combustion in owned boilers or vehicles. For the purposes of compiling emissions data reports for carbon auditing and regulatory submission, an entity's direct emissions are often collectively referred to as Scope 1 emissions by those of skill in the art. These emissions can be measured accurately utilizing equations which may require, for example, knowledge of mass/volume of fuel burned per unit time and knowledge of how the fuel was burned.
An entity's Scope 1 emissions can be affected by many factors, including such things as the manner in which factories are operated or goods are transported within and by the company. For example, a company using hybrid vehicles to transport its goods rather than traditional internal-combustion-only vehicles may be deemed to have reduced its carbon footprint by a certain degree. Likewise, companies who have undertaken efforts to reduce their factory emissions, for example by using on-site renewable heat sources such as solar thermal paneling, will also have a smaller carbon footprint than companies that have not engaged in such efforts.
Indirect operational emissions are defined as having resulted from the generation of the electricity consumed by the entity. These emissions occur physically at the facility where electricity is generated by the entity's supplier and are often collectively referred to as Scope 2 emissions by those of skill in the art. These emissions also can be calculated with a high degree of accuracy using knowledge of the amount of electricity used in a particular time period (for instance in Megawatt-Hours), and then using the ‘emissions factor’ relating to a particular power supplier and specified tariff.
These Scope 2 emissions will be decreased proportionally if the entity chooses an electricity supply tariff that includes a component of renewable energy. Likewise, emissions may be reduced if the entity is able to reduce its need to import electricity from an outside supplier by such methods as improving energy efficiency, or developing on-site renewable power sources such as solar photovoltaic panels.
A range of other emissions relating to an entity's activities may also be considered in calculating its net carbon footprint. These will vary by industry sector and sub-sector and are often referred to as Scope 3 emissions. They may include emissions resulting from such activities as employee travel, and travel to the entity's premises of downstream consumers. Both upstream and downstream suppliers of the entity's value chain may be considered in estimating Scope 3 emissions. This may be important, for instance because the ‘carbon-intense’ parts of the value chain might be performed by a third party rather than by the entity under consideration, but still arise as a result of the entity's business. An example of the latter would be an online mail-order firm which, having a small warehouse and office, might cause low direct/indirect emissions itself, but subcontracts a delivery firm with a fleet of trucks and high emissions. The downstream effects factor may also be affected by a plethora of other factors which are likely to vary from industry to industry.
An additional downstream emissions source which may be factored into an assessment of the green-ness of a particular company is consideration of how efficiently a company's products operate. This would include manufacturers of products which consume electricity (causing indirect emissions), for instance televisions, or burn fuel (causing direct emissions), for instance automobiles. Because the products would not be owned or operated by the company during their use and resulting emissions, these would be considered Scope 3 downstream emissions.
Likewise, the emissions resulting from upstream suppliers to a particular entity's business activity may need to be taken into account for calculation of net carbon footprint. For example, suppliers of raw materials and other resources to an entity may be considered green or not green, depending upon how they conduct their affairs. Entities wishing to reduce their own net carbon footprint may therefore choose to do business with like-minded entities, for example, choosing a supplier that uses low-emission vehicles or relies on renewable energy to power their facilities.
Naturally, there are costs associated with being green. Raw materials from upstream green suppliers may be more costly than obtaining the same resources from a less-green company. Costs of renovating factories to be more environmentally friendly can be significant Therefore, there may be varying degrees of “green-ness”, depending upon how much of an investment a company is willing or able to make and how much its carbon footprint can be reduced.
There may also be advantages to making a company's operations as green as possible. More and more companies are becoming environmentally friendly because their customers and investors demand it, preferring to do business with green companies rather than with non-green (or “less green”) companies. Consumers, whether they be end-users of the production of an entity, or a downstream consumer, may be willing to pay more to deal with a company that is green. In the case of downstream customers, doing business with a green upstream provider may have the effect of lowering the company's overall carbon footprint. With respect to end consumers, many such people are environmentally conscientious and would prefer to purchase goods and services from green companies, regardless of whether or not the goods and services are being offered at the lowest market price. Likewise, many investors wish to have a green portfolio, and institutional investing funds have been established that will only invest in green companies. Therefore, companies may be rewarded for being green and may therefore wish to re-engineer themselves and their products to be as environmentally friendly as possible.
Therefore, there is need of a means to assess the degree of “green-ness” of an entity, to compare it to other similar entities, and to allow the entity to maximize the return on its green investment by making use of it as a marketing tool. There is a need therefore, of a method of marketing which is based on the desire to reward those companies that have made significant efforts to become green.